4th IMMEX Outlook - Deloitte · 2020-02-12 · 4th IMMEX Outlook: Northern Region Study of...

4th IMMEX Outlook: Northern RegionStudy of tendencies and perspectives of professional executives in the IMMEX industry Baja California, Sonora and Chihuahua

Contents

Transfer prices

Introduction

Business climate in country

and company

Conclusions

Challenges

Current and near-term situation of companies

in the regionFiscal and

foreign trade

Profile of participant

Perspective

4

30

28

6

14

18

19

23

12

Introduction

Deloitte continues to meet its duty to generate industry-specific information and analytical tools to aid executive management in taking decisions and setting organizational goals.

The 4th IMMEX Outlook contains information regarding the opinions and expectations of industry executives for 2015. Their perspectives and leanings vary with regard to the impact of domestic and international business conditions on the planning of investment projects.

While 2015 did not bring about significant fiscal reforms, among businesses and professionals much attention was given to matters of VAT and IEPS certification, and Advanced Pricing Agreements (APA).

On the international scene, the deceleration of the Chinese economy sent out alerts in markets to begin adjusting the scale of production which affected expectations for short-term recovery of the world economy. In contrast, the US economy, in terms of production levels, consumer spending and employment, has shown signs of recovery. Nonetheless, the market is taking these signs with some reserve.

As will be shown below, recovery in USA could generate new opportunities in our region. In general terms, the results of the survey of expectations are promising.

Among emerging economies, Brazil is facing the beginning of a serious economic crisis, leading investors to Mexico, where they find attractive investment opportunities in manufacturing and commercialization of goods. Despite

this trend, Mexico still needs to improve in the areas of competitiveness. According to the World Economic Forum’s Global Competitiveness Index for 2015-2016 Mexico ranks 57 out of 147 countries included in the report.1

The good news is that compared to last year, Mexico moved up four places on the strength of an improved financing system, macroeconomic stability and the size of the internal market. According to the analysis provided herein, Mexico still needs to strengthen institutions and bring greater flexibility to the labor market. The 2015-2016 World Economic Forum report recognizes Mexico’s progress in the areas of legislative reform of pressing economic questions, but hopes that the promise of opportunity residing in the transparent, effective implementation of these reforms is not delayed.

Mexico’s economy is Latin America’s fourth in terms of competitiveness. Chile, rated at 35, is Latin America’s highest ranked economy. While Mexico’s macroeconomic conditions and substantial internal market provide the launch pad for significant growth, there are still obstacles in the areas of infrastructure, innovation, corruption and others.

At the regional level, Baja California, Chihuahua and Sonora exhibit good signs of economic recovery, which coincides with the outlook of the professionals surveyed. Broken down by state, the following is the most recent information on economic activity in the region.

4

(1) http://reports.weforum.org/global-competitiveness-report-2015-2016/competitiveness-rankings/

In particular, Baja California grew by 4.0% in the first half of 2015, even after discounting the contraction of 2014. Chihuahua, meanwhile, exhibits significant growth after a period of stagnation in 2014, and Sonora achieved a good rate of growth over both periods.

Even though these growth numbers are above the national average, one must keep in mind that other states, such as Querétaro and Guanajuato, achieved growth of above 9.0% according to this indicator. A part of this difference can be explained by differences in Foreign Direct Investment (FDI), where the latter two states have outperformed many others in recent years.

The attraction of FDI in our region breaks down as follows:

To June 2015, our region has attracted 11.2% of the total FDI entering Mexico. While this is a significant figure, it cannot compare with Jalisco and Nuevo Leon, which have attracted 9.8% and 8.9%, respectively. Not surprisingly, the Federal District of Mexico City and the State of Mexico at 22.8% and 14.1%, respectively, lead all others in FDI.

The 4th IMMEX Outlook report is based on surveys of 350 professional executives working in the industry in the states of Baja California, Sonora and Chihuahua, which are the Mexican federated states with the largest concentration of IMMEX companies and workers.

No doubt the IMMEX industry will continue to attract investment; however, the region needs to develop other kinds of secure, reliable and fiscally viable investments opportunities if it wishes to enhance its position in the eyes of foreign investors. Deloitte has the expertise and resources to support any type of business investment.

4th IMMEX Outlook: Northern Region Study of tendencies and perspectives of professional executives in the IMMEX industry 5

Economic growth by state

2015 2014

Baja California 6.2% -2.2%

Chihuahua 5.3% 1.2%

Sonora 6.2% 4.2%

National average 2.2% ND

Source: INEGI State economic activity indicator for second quarter of 2015, annual variation.

DFI in first half of 2015

In millions USD Percent of

national total

Baja California 493 3.6%

Chihuahua 665 4.8%

Sonora 380 2.8%

National total 13,750 100%

Source: INEGI State economic activity indicator for second quarter of 2015, annual variation.

Mario GarcíaPartner Director Cluster BC-Sonora

Gonzalo Gómez Partner Director of Tax and Legal Services Cluster BC-Sonora

Pedro Rodríguez Partner Director Cluster Chihuahua

The survey was taken during the second half of 2015 and gathers 350 responses from professionals working in diverse areas of the in-bond industry. Surveys were performed by telephone interview and email. These professionals work in the states of Baja California, Sonora and Chihuahua.

The following pie chart shows that 25% of respondents are controllers or general accountants, 20% are area managers; 5% are either area directors, general directors or presidents; and the balance work in areas as diverse as human resources, import-export operations and customs.

6

Profile of participants

Controller/General Accountant

Area Manager

Other, specify

Chief, supervisor and/or customs specialist

Supervisor, Assistant, import-export Chief

Human Resources Manager

Accountant

Area Director/General Director/President

HR Chief/Supervisor

General Manager

JOB HELD IN YOUR COMPANY

2%2%6%

25%

20%

15%

11%

5%

9%

5%

Regarding the source of investment in the company, 73% of respondents indicated the United States, 3% Korea, Europe and Japan, 2% China and 1% Canada.


USA

Other

Japan

Europe

China

Canada

Korea

Taiwan

SOURCE OF INVESTMENT IN YOUR COMPANY

1%1%2%

73%

3%

14%

3%3%

The vast majority of those surveyed work in an IMMEX enterprise. Fully 96% of respondents work within an authorized (IMMEX) program.

Of the companies surveyed, the largest was the electrical/electronics sector (20%), followed by textiles (12%) and automotive (11%). 19% of the survey respondents did not specify an industrial sector. The balance of 38% were dispersed among the sectors cited in the corresponding chart.

8

96%YES

3%NO

1%NOT APPLICABLE

Does your company operate under temporary import regime?

96%IMMEX

2%OTHER

2%UNKNOWN

What type of import regime does you company employ?


Electrical/Electronics

Other

Textile

Automotive

Consumer Products

Medical Supplies

Plastic

Metal/Metal Mechanics

Packaging

Services

Furniture

Aeroespace

INDICATE THE INDUSTRIAL SECTOR CLASSIFICATION OF YOUR COMPANY

0

5

10

15

20

25

19%

38

12%11%

8%7% 7%

5% 4%3% 2% 2%

20%

In terms of company revenue, 39% of respondents reported they work in companies with revenues above 35 million pesos, while 12% reported working for companies with less than 35 million, 49% did not know.

10

Less than 35 million pesos

35 to 100 million pesos






5001 to 10,000 million pesos

More than 10,000 million pesos

Information not available

0% 10% 20% 30% 40% 50% 60%

12%

17%

9%

5%

39% greater than 35 million pesos2%

2%

1%

0%

3%

49%

REVENUE RANGE OF COMPANY IN LAST FISCAL YEAR

Gauged by number of employees, the most frequent range for the size of the company came in at between 101 and 300 employees (35%), followed by companies with 301 to 500 employees (17%), those with 501 to 1,000 (15%) and those with more than 1,000 (14%). Companies with less than one-hundred employees comprised 12%.


Information not available

More than 5,000

Between 1,001 to 5,000

Between 501 to 1,000

Between 301 to 500

Between 101 to 300

Less than 100

NUMBER OF EMPLOYEES

0% 5% 10% 15% 20% 25% 30% 35% 40%

6%

1%

14%

15%

17%

12%

35%

The second part of the study examines the outlook of professionals with regard to the country as a whole and their companies. Let’s have a look at the impact of the business climate on the industry according to the opinion of the professionals surveyed

General overviewThe variables that outperformed last year’s results are as follows: US economy (47%), IMMEX competitiveness (45%) and employment (40%). However, in the variables of security and the economic situation of the country, at 57% and 53%, respectively, this year’s survey reveals retreats versus last year’s figures. Interestingly, the 3rd edition of Outlook IMMEX also reported unimproved security.

12

Business climate in the country and company

Cost of material/supplies

Insecurity

Employment

Availability of credit

Investment climate

IMMEX competitiveness

Economy of USA

Economic situation of the country

CURRENT SITUATION VS. LAST YEAR – GENERAL

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

32% 20% 8% 40%

31% 34% 12% 23%

29% 45% 11% 15%

34% 47% 4% 15%

33% 31% 26% 10%

31% 40% 2% 27%

28% 18% 1% 53%

29% 12% 2% 57%

How do you consider the following concepts in Mexico, compared to a year ago?

Unchanged

Improved

Do not know/Did not respond

Worse

The highest rated outlook score was for the US economy (48%), while employment, availability of credit and investment climate came in at 46%, a figure that is expected to remain unchanged for the remainder of the year. This chart reaffirms that and improving US economy will exert an impact on the other variables, though this year any such impact would be considered “average.”


Cost of material/supplies

Insecurity

Employment

Availability of credit

Investment climate

IMMEX competitiveness

Economy of USA

Economic situation of the country

NEAR-TERM OUTLOOK - GENERAL

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

40% 19% 6% 35%

46% 30% 8% 16%

35% 39% 13% 13%

36% 48% 5% 11%

46% 24% 19% 11%

46% 34% 3% 17%

33% 34% 3% 30%

42% 16% 3% 39%

How do you consider the future status of the following concepts for the next year?

Unchanged

Improved


Worse

Warehouse, machinery and equipment use capacity

Amount of leverage

Impact of exchange rate volatility on earnings

Reliability of inventory control system

IMSS (Social Security) requirements

Turnover of personnel

Rotación de inventarios

Production demand

CURRENT SITUATION OF YOUR COMPANY VERSUS LAST YEAR

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

38% 7% 50% 5%

53% 6% 32% 9%

28% 10% 43% 19%

36% 19% 41% 4%

52% 16% 15% 17%

24% 12% 54% 10%

38% 17% 43% 2%

12% 25% 29% 34%

How do you consider the following concepts in Mexico, compared to a year ago?

High

Low

Normal


14

Current and near-term situation of companiesin the region

In contrast to the previous report, company variables compared to last year came in largely unchanged (normal or stable), with the exception of volatility in the exchange rate, which was rated as improved (52%) and reliability of inventory systems at 53%.


With regard to last year, 58% of respondents reported that the company is currently better off than last year, while 31% reported no change and 10% reported the current year being unfavorable.

Current and near-term situation of companiesin the region

58%31%

10%1%

Improved

Unchanged

Worse


GENERAL SITUATION OF THE COMPANY VERSUS

LAST YEAR

16

With regard to the one-year outlook, the professional surveyed assigned average or normal ratings for most variables. The variable receiving the highest rating was production demand at 50%.

Warehouse, machinery and equipment use capacity

Amount of leverage

Impact of exchange rate volatility on earnings

Timely, reliable compliance with online accounting filings

Timely, reliable compliance with Annex 31

Reliability of inventory control system

IMSS (Social Security) requirements

Turnover of personnel

Rotation of inventory

Production demand

NEAR- TERM (12-MONTH) COMPANY OUTLOOK

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

33% 3% 58% 6%

37% 3% 39% 21%

45% 1% 44% 10%

24% 8% 51% 17%

23% 18% 54% 5%

37% 3% 43% 17%

38% 9% 37% 16%

30% 5% 55% 10%

50% 4% 43% 3%

11% 21% 36% 32%

How do you consider the future status of the following concepts for the next year?

High

Low

Average



In the general terms in view of the opinions gathered about 2016, 74% of the respondents have a positive outlook, while 23% believe things will remain largely unchanged and 2% expect a worsening scenario.

17

Better

Unchanged

Worse

Do not know/ did not respond

GENERAL SITUATION OF THE COMPANY WITHIN ONE YEAR

74%

23%

2% 1%

18

In the second section of this report, we will address specific areas of companies. Fully 88% of respondents indicated that their companies meet CFDIs associated with payment of salaries and income tax retentions.

Perspectives

Yes

Unknown

No

FISCAL

88%

10%2%

Since 2014 companies that pay salaries and make income tax withholdings have been required to issue CFDIs for these withholdings and VAT. Has your company performed a review of its CDFIs to ensure they are in compliance with all legal provisions?


Moreover, 86% of respondents indicated that their companies are certified with regard to VAT and IEPS.

Of these certified companies, 31% hold AAA certification, 29% A and 22% AA, while 18% of respondents did not specify.

Fiscal and Foreign Trade

Yes

No

FISCAL

86%

14%

Is your company certified for the VAT and IEPS?

A

AA

AAA

Unknown

FISCAL

22%31%

29%18%

What type of certification does your company hold?

20

Of the total respondents, 82% report that their company is in compliance with the duties of Annex 31, while 15% said they did not know and 3% reported not being in compliance.

Yes

Unknown

No

FISCAL

3%

82%

15%

Is your company in compliance with the duties of Annex 31?


With regard to compliance with Annex 24, 61% of respondents reported having an inventory control system, while 39% stated that such compliance does not apply to their company or that they do not know.

Yes

Unknown

61%39%

FISCAL

With regard to Annex 24. Does your company have an inventory control system?

Of the survey respondents reporting an inventory control system, the most common was Millennium (12%), followed by I-Xport (9%).

Others

ORACLE

ADUANA SOFT

SAP

Internal

BASTERA

Intrade

GR Soluciones

Delta

ZOE

I-Xport

Millenium

0% 5% 10% 15% 20% 25% 30% 35% 40%

2%

3%

3%

6%

2%

2%

7%

7%

7%

9%

12%

40%

FISCAL

Specify your company’s inventory control system.

22

Regarding filing the tax report, 66% said they had filed, while 17% said they had not.

Meanwhile, 64% of respondents stated they had filed the Annual tax informative of the tax payer´s fiscal situation (DISIFI, for its acronym in Spanish) for the year 2014. Companies that failed to filed this report should review their situation, because all IMMEX companies execute transactions with foreign companies.

Yes

No

Unknown

FISCAL

17% 66%

17%

Has your company filed a tax report?

Yes

No

Unknown

FISCAL

20% 64%

16%

Has your company filed the Annual tax informative of the tax payer´s fiscal situation (DISIFI, for its acronym in Spanish) for the year 2014?

Unknown

Safe Harbor

APA (Advanced Pricing Agreement)

Other

TRANSFER PRICES

3%

55%24%

18%

What methodology has your company chosen to meet transfer pricing obligations?


The year 2015 was a significant one in matters of transfer pricing in companies executing transactions with related parties. The implementation of the BEPS (Base Erosion and Profit Sharing) by the OECD in transfer pricing and fiscal matters has led many companies to review operational, fiscal and organizational arrangements in order to ensure compliance with provisions of Mexican law, while also maintaining competitiveness in global markets.

LISR must finalize their choice of compliance options. The survey data breaks down companies’ compliance choices as follows:

Transfer prices

1 Base Erosion and Profit Shifting

A total of 24% of those surveyed reported using Safe Harbor as a compliance option, while 18% choose APA. Moreover, 55% reported having no knowledge of the option chosen by their companies.

24

Unknown

Despite paying honoraria, APA offers savings versus Safe Harbor

It is easier to calculate than Safe Harbor

Other

No budget to pay additional honorarium

It is easier than to calculate than Safe Harbor/ Despite paying honoraria, APA offers savings versus Safe Harbor

PRECIOS DE TRANSFERENCIA

2%5%

0%

66%

14%

13%

Why did your company choose this transfer pricing option?Among this response group, 14% stated that despite the need to hire specialists they chose APA because it offered significant savings versus Safe Harbor. Meanwhile, 13% stated that they opted for Safe Harbor because it is easier to calculate.


Other factors influencing this decision include: a) the amount of non-deductible expenses; b) the impact of non-recognition of labor benefits in D3; c) the fiscal position of the foreign residents, etc.

It is important to keep in mind that the APA option is not restricted to 2014 and 2015. The taxpayer can opt for this administrative simplification in any fiscal year. In this light, companies currently using APA are well advised to review their position in order to determine which option, APA or Safe Harbor, is best.

With regard to the restructuring of IMMEX, 49% of respondents stated they had not undergone restructuring because they do not sell products in Mexico, while 34% did not know, 6% established a sales company and 3% ceased maintaining a permanent establishment.

No, the IMMEX company does not sell product in Mexico.

Unknown

Other

Yes, a commercial company was created

Yes, the company ceased to have a permanent established

TRANSFER PRICES

3%6%

48%

34%

9%

As a consequence of constraints placed on permanently established IMMEX companies, barring them from selling goods in Mexican territory, did your company restructure in 2014?

26

With regard to Shelter, 70% of respondents do not know if they have a strategy in place to operate in this modality for four years, while 27% reported that they do not have a strategy in place and 3% stated that there is such a strategy.

Unknown/Not applicable

No

Yes

TRANSFER PRICES

3%

70%

27%

If your company operates under the Shelter program: As a consequence of the limitations placed on foreign investment operating in Mexico under the Shelter program (allowing four years of operation in this modality), does your company have plans to operate independent


Meanwhile, 47% reported that they are currently performing a transfer pricing study to demonstrate that inter-company transactions have been executed at prices equal to those for transactions with unrelated parties; 31% of respondents reported having no knowledge of such matters and 22% responded no to the prompt. With regard to this point in 2016, it will be important to stress the recently promulgated Article 76-A of the Income Tax Act, which requires, among other duties, companies with revenue of above 644 million pesos to file three new informative reports of transfer pricing. This new requirement was implemented in accord with the recommendations of BEPS and OCED.

Yes

Unknown

No

PRECIOS DE TRANSFERENCIA

22%

47%

31%

If your company is a non-permanent IMMEX enterprise, has it performed studies of inter-company transfer pricing to demonstrate that prices were set as if between independent parties?

28

Challenges

The survey included a section asking professional executives to identify current challenges facing IMMEX companies. Respondents were free to choose more than one option. Of the responses gathered, fully 71% agreed that strategies for reducing costs is key. This response was followed by the constant changes in foreign trade and tax laws at 61%. Increases in reporting requirements to tax authorities garnered 53%, SAT audits of foreign trade came in at 50%; and labor issues, compensation and social security were cited by 46%. Technological programs and systems and rising costs of raw materials/suppliers were cited by 43%, while human capital plans garnered 39%. Management of privacy and data were mentioned by 37%. Finally, benchmarking, trend analysis, best practices and predictive modeling came in at 22%

Implementation of costs reduction strategies

Constant changes in foreign trade regulations

Increasing information reporting requirements

External audits of foreign trade performed by SAT

Labor/compensation/Social Security

Information technology programs and systems

Price pressures on raw materials/Supplier

Implementation of human capital development plan

Management of privacy issues

Benchmarking and trend analysis

Other

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

71%

61%

53%

50%

46%

43%

43%

39%

37%

22%

2%

In the view of your particular department or area, which of the following are important challenges facing your organization? (You may choose more than one)


Fully 91% of respondents expect the peso to fall to pull back to 15 pesos per USD. Currently, the exchange rate stands at over 17 pesos per dollar.

Below 14

14.0 - 14.50

Did not response

Do not know

14.50 - 15.00

Over 15.00

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

0%

1%

3%

0%

5%

91%

EXCHANGE RATE

In your view, what will the Exchange rate be at year’s end?

30

Conclusions

Despite the maturity of the in-bond sector, the vicissitudes of the current business climate –with some economies growing while other shrink, and the shifting sands of insecurity, demographic pressures and legal requirements– places heavy demands on companies, requiring them to modify many operational processes. Changes in international trade and fiscal regulations constitute and additional worry, as companies make efforts to stand in compliance. The power to levy taxes, associated with the act of tax collection, distracts companies from concentrating on development and

improvement of processes. As reported in earlier surveys, the danger of falling into non-compliance and incurring fines continues to worry the sector. Despite the heavy regulations weighing upon the industry, companies continue to strive to stand in compliance with requirements while remaining viable. The IMMEX sector exists, of course, in a strategic position between the demands of the American market and the constant effort to keep the economy growing. These factors ensure that the in-bond industry will be around for quite some time to come.

Edition:

Héctor Silva, Partner of Taxes and Legal Services

Antonio Ochoa, Partner of Taxes and Legal Services – Transfer Pricing

Title of publication Focus area of publication 3131

ContactsBaja California - Sonora

Mario Garcia

Tel: +52 (664) 622 7810

[email protected]

Gonzalo Gómez

Tel:+52 (664) 622 7950

[email protected]

Gilberto Gómez

Tel:+52 (664) 622 7953

[email protected]

Héctor Silva

Tel: +52 (664) 622 7840

[email protected]

Héctor Vega

Tel: +52 (664) 622 7821

[email protected]

Simón Somohano

Tel: +52 (664) 622 7872

[email protected]

Antonio Ochoa

Tel: +52 (664) 622 7874

[email protected]

Manuel Muñiz

Tel: +52 (664) 622 7969

[email protected]

Hiram de la Torre

Tel: +52 (664) 622 7954

[email protected]

Chihuahua

Pedro Rodríguez

Tel:+52 (614) 180 1102

[email protected]

José Orencio Pérez

Tel:+52 (656) 688 6547

[email protected]

Alberto Riquelme

Tel: +52 (614) 180 1104

[email protected]

Esther Sánchez

Tel: +52 (656) 688 6581

[email protected]

Aurea Betancourt

Tel: +52 (656) 688 6528

[email protected]

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4th IMMEX Outlook - Deloitte · 2020-02-12 · 4th IMMEX Outlook: Northern Region Study of...

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